Democrat Governor Ted Kulongoski has offered only a few
specific details, outlining only general standards.
His plan thus far has been to defer to the state
legislature to determine the best way remake the roughly
$32 billion Public Employees Retirement System (PERS),
currently faced with a $15 billion shortfall, according to
a report by Reuters.

One proposal the governor has offered is a reduction in
the number of board members from the current 12
to five.
With the reduction, Kulongoski also would like to see the
face of the board change to include a representative each
for public employees and employers, with the other three
slots filed by financial experts.

Additionally, the freshman governor may entertain an
idea of ending the 6% employee contributions for
each pre-1996 employee. This is nominally the
“employee” contribution, but, as a result of collective
bargaining agreements, the municipality typically pays it.
These contributions go into individual accounts that
employees can choose to allocate either to the general pool
managed by the Oregon State Investment Council or to
separate variable annuity accounts. Employees can place up
to 75% of their assets in a variable stock account.

However, a spokeswoman for the governor made it clear
that a top priority is a proposal that would
offer a solution both equitable to the approximately
300,000 public employees in the pension fund and affordable
to taxpayers.

“Living” Document

Oregon’s pension fund has a few particular problems that
Kulongoski sees as part of his repair.
Like much of the nation’s public pension funds (see
S&P: Pension
Pressures May Push Public Funds
), PERS has been ravaged by a weak economy and
precipitous
decline in the stock market, diminishing the fund’s overall
return while costs keep rising.

However, the real problem may be in the state’s
antiquated pension mortality tables (See
Running the Fund: Blame It On the System
).
In order to help fix the problem, the governor wants the
pension fund to use updated mortality tables that take into
account the fact people are now living longer.
The board has been reluctant to update the current
25-year-old
actuarial tables to determine lump-sum annuitization;
and an oversight system heavily loaded in participants’
favor.

Because people generally live longer than they did
circa1978, the plan is paying out benefits for an average
four years longer than it expectedan error estimated in
2002 to be costing roughly $135 million a year. Oregon PERS
had long put off fixing the actuarial tables, fearing
backlash from the state’s powerful public employee unions.
The board finally gave into taxpayer pressure in August,
voting to change the tables and ordered benefits to be
recalculated retroactively. However, originally expected
tobecome final in November, the Board now says the
final changes will be put up for approval February 25
(SeeOregon
PERS Oks Expectancy Table Changes).

Actuarial updating will save the plan an
estimated$442 million over several years – saving an
estimated $53 million annually for taxpayers, by reducing benefit checks to workers who retire
within this period by 7% to 12%.